It’s 2017, and marijuana is legal in some places. No, you can’t light up a joint in the middle of a city street and blow smoke in a cop’s face. You can, however, receive a prescription for medical cannabis or flat-out purchase weed in select states.
With a newly legal product comes legal, pot-based businesses. While there are thousands of dispensaries, growing operations, and weed-centric startups, only a handful of these businesses are publicly traded on the stock market. This means that you, the budding investor, can actually put your money into these companies with the hopes of making some sweet gains.
Yet not all publicly traded marijuana companies are created equal. Sure, some are worth hundreds of millions, if not billions of dollars in a short period of time. Yet if you’re just starting out on the stock market, there are some pot stocks you should actively avoid.
Keep your distance from penny stocks.
If you’re making your first investments, you don’t want to assume too much risk. That is why we strongly advise against buying stocks on the over-the-counter (OTC), or “penny stock” market. Unlike stocks on the Nasdaq, New York, and Toronto stock exchanges, these stocks are incredibly risky, unregulated, and volatile. They could increase in value pretty quickly, but they could also lose value — or go belly-up — just as fast. There are numerous scams on the OTC market, included schemes that could rob you out of your hard-earned cash.
The reason we’re addressing penny stocks is because most publicly traded marijuana companies are on the OTC exchange. Some of these companies might actually be legit and use the OTC exchange as a way of raising money. Yet since there’s no regulation, oversight, and exchange rules to abide by, you never really know what you’re getting into.
Stay away from ETFs containing OTC stocks.
Though we talked the first-ever medical marijuana exchange-traded fund (or ETF) in the past, it’s worth noting that this ETF contains some penny stocks. It also contains stocks on regulated markets, though the penny stocks in the ETF are significantly higher in risk. Perhaps this is why $HMMJ has consistently dropped since it launched earlier this year.
Look at publicly traded (and regulated) weed stocks instead.
Canopy Growth is a publicly traded weed stock with a market cap of $1.31 billion. It’s also listed on the Toronto Stock Exchange, a regulated market with strict bylaws to prevent fraudulent activity. If you want to invest in weed, consider stocks like Canopy or even Scotts Miracle-Gro, a lawn care company that invests heavily in the legal marijuana space.
If the existing public weed companies on legit exchanges don’t sound exciting, you could always wait for more marijuana companies to go public. There are plenty of companies exploring this option for the near future, and publicly traded marijuana business are a currently a fraction of what they will be in the next few years. Whatever you do, keep your money away from the OTC markets. Unless, of course, losing money sounds like a good idea to you.